News Brief: IMF Completes Second Review Under the Extended Arrangement for Colombia
March 28, 2001
The Executive Board of the International Monetary Fund (IMF) completed the second review of Colombia's performance under the Extended Fund Facility (EFF)1 arrangement approved on December 20, 1999 (see Press Release No. 99/63), allowing Colombia to draw, if needed, up to SDR 1.96 billion (US$ 2.7 billion) from the IMF. To date, the country has not made any purchases under the arrangement.
In commenting on the Executive Board's discussion of the review, Stanley Fischer, First Deputy Managing Director, made the following statement:
"Economic activity in Colombia strengthened in 2000, following the 1998/99 recession, helped by satisfactory implementation of the initial phase of the government's three-year program. The government's program for 2001 aims to sustain the recovery. Growth is projected to increase to near 4 percent and inflation to fall further to 8 percent. The external position is projected to remain strong with debt falling slightly in relation to GDP.
"The fiscal program for 2001, which is critical to achieving these objectives, calls for the nonfinancial public sector deficit to fall to 2.6 percent from 3.5 percent of GDP in 2000. This is to be achieved through expenditure reduction and a strong tax effort-drawing on the tax package that was recently approved by congress-to compensate for a projected decline in income from the petroleum sector. Most of the financing of the fiscal deficit is being secured from external sources. Monetary policy in 2001 will be implemented under an inflation-targeting framework and the exchange rate will continue to float.
"The government will carry forward its ambitious agenda for reforming and downsizing the public sector, including through strengthening control over finances at all levels of government, streamlining the tax and revenue sharing systems, and reforming the public health and pension systems.
"The restructuring program for the financial sector in 2001 focuses on strengthening the mortgage institutions. The remaining public banks, except one, will be divested or liquidated before the end of the year, as envisaged earlier.
"Unemployment has reached a high level. The government is introducing measures to reduce it, including through the creation of short-term jobs, training programs, and incentives for education, but complementary measures to improve labor market flexibility are also needed.
"Directors commended the authorities' policy efforts, which have achieved considerable success despite the difficult domestic security situation," Mr. Fischer said.
1 The EFF is an IMF financing facility that supports medium-term programs that seek to overcome balance of payments difficulties stemming from macroeconomic imbalances and structural problems. The repayment terms are 10 years with a 4 ½-year grace period, and the interest rate, adjusted weekly, is currently about 3.8% a year.